Company Pensions: Final Salary schemes

The 'Final Salary' bit.

With a final salary scheme, the pension you receive at retirement is directly related to your final salary before retirement. This is a benefit because it means you will have a very good idea of what your pension income will be before you actually retire.

A final salary scheme can pay up to two thirds of your final salary when you retire, up to a maximum of £102,000. It can also provide a tax free lump sum at retirement, again up to a maximum of one and a half times your final salary. Taking the lump sum will normally reduce your pension.

Many final salary schemes have a host of additional benefits such as death in service benefits of up to four times annual salary. Widows & dependent children's pensions, known as death in retirement benefits & often long term disability benefits all in addition to the salary related pension already mentioned

Many companies increase the actual pension payments by approximately 3-5% per annum. This alone is a very valuable benefit that would be costly with a money purchase type scheme.